Changing business dynamics have created the need for virtual, multichannel, and flexible servicing infrastructures. Technologies based on Internet Protocol (IP) and Session Initiation Protocol (SIP) have eliminated physical communications constraints, empowering enterprises to be more responsive to their customers’ needs. Enterprises are seeking ways to leverage these new technologies, and contact center hosting is an ideal and cost-effective fit.

Adoption of cloud-based (or hosted) contact center solutions continues to pick up momentum, even as their premises-based counterparts recover from the recession more slowly. Contact center and IT managers increasingly agree that going hosted is a practical way to acquire technology. Business managers like it because they can get what they need without a major capital outlay. IT also likes it because users’ needs can generally be met without requiring a lot of their time and resources; better yet, the problems are not IT’s headache.

Within five years, the vast majority of contact centers globally should be using hosted solutions. While there are many positives to cloud-based contact center solutions, this approach is not right for every organization. Premises-based solutions sometimes are more cost-effective, particularly for stable organizations with the financial strength and technology management capabilities to comfortably own and maintain their solutions.

Adopting Cloud-Based ApplicationsIn situations where hosting is cost-effective, it is compelling. As recently as four years ago, the contact center market seriously lagged many other industries in bringing cloud-based solutions to market. But that has changed in the past three years, and almost every category of contact center solution is available on a hosted basis. The most popular and mature of the hosted solutions are contact center infrastructure offerings for interactive voice response (IVR) and routing and queuing (also referred to as the automatic call distributor, or ACD). The third most popular solution to host is workforce management, or WFM. (Voicemail also is frequently hosted but is not considered a contact center–specific application.) Surveying, chat, email response management, and e-learning applications also are hosted by a surprisingly large number of users.

To date, adoption of hosted recording and quality assurance (QA) applications has been slow, but look for that to change in two or three years as it becomes easy for companies to acquire these capabilities from their hosted contact center infrastructure providers. By the end of 2010 and in early 2011, leading workforce optimization vendors (WFO) vendors woke up to the new market reality: They were losing some large deals to hosted vendors. That forced them to come out with hosted offerings of their own. Those vendors still are not happy with the situation because they believe it will cannibalize sales of their premises-based offerings. But the trend is so strong that even the most reluctant vendors have realized that hosting must be part of their future.

The hosting business model lets companies acquire functionally rich technology and applications without a large capital investment or long-term commitment. It is also highly scalable and gives users ongoing technical support and access to innovation and upgrades at no additional cost. Ease of provisioning, a reduced maintenance burden, and the opportunity to try it before you buy it make hosted solutions attractive as a low-risk alternative to on-premises. Depending on the needs of an enterprise and the length of time it would like to use a hosted solution, the ROI can be significant.

Perform a Host vs. Buy Analysis to Validate your DecisionProspects should perform a financial lease (host) vs. purchase/license analysis to understand the impact of this acquisition model on their bottom line. Chief financial officers often prefer the hosted acquisition approach because it allows them to hold onto their company’s capital. This benefit is compelling even when CFOs know that after three to five years, the cumulative cost could be higher for a hosted service model. In general, if an organization were to buy a premises-based contact center solution and not make any upgrades or enhancements over the life of the asset, it would likely cost less than a hosted solution would have. However, if an organization plans to keep its ACD current, take advantage of product enhancements, or has to upgrade hardware every few years, a hosted solution would likely prove more financially beneficial.

Another important factor to consider when doing a host vs. buy analysis is the impact of operating costs. When the costs of IT support staff, electricity, and rent and occupancy are included, it often slants the decision in favor of hosting.

End users are strongly encouraged to perform both a host (lease) vs. buy analysis and total cost of ownership (TCO) assessment. However, remember that many factors must be weighed in addition to the financials.

What to Look for in a Cloud-Based Contact Center VendorWhile hosting is simply an alternative sales and delivery vehicle for applications, it is also one in which the importance of a strong vendor-client relationship is paramount. The most successful hosting companies, such as Salesforce.com, play well with others. This is an important lesson that hosted contact center infrastructure vendors are starting to learn—and one that premises-based contact center vendors took too long to acknowledge.

Though end users increasingly expect their hosted contact center infrastructure vendor to provide them with all of the functionality they require, they also need their vendor to function as their communications platform and hub that facilitates all necessary integrations. This is a technical and philosophical challenge for many of the hosted contact center infrastructure competitors. The vendors that figure out how to address this apparent contradiction while consistently delivering an outstanding, reliable, and cost-effective experience will become the leaders in this increasingly competitive IT sector.

Final ThoughtsDMG encourages companies to consider cloud-based alternatives when going through an acquisition for any type of contact center technology or application. Many of the cloud-based providers have built solutions themselves, instead of following the classic path of converting a premises-based solution to a hosted offering. As a result, hosted vendors have introduced new and sometimes innovative capabilities, expanding the options for companies acquiring solutions.

There is also the practical benefit from including cloud-based vendors in an acquisition process; it broadens the pool of credible bidders and would probably fetch a better price. Regardless of the ultimate selection, adding hosted offerings to an RFP recipient list would enhance the competitive environment and give prospects more choices and pricing options.

Donna Fluss (donna.fluss@dmgconsult.com) is founder and president of DMG Consulting, a leading provider of contact center and analytics research, market analysis, and consulting.